Thursday, April 30, 2009

Several firms commenting on Sequenom (NASDAQ:SQNM) after the co announced it has delayed the launch of its Down syndrome (T21) test due to “employee mishandling” of R&D study data in both the RNA & DNA arms. As such, the company is no longer relying on previously reported results as “the clinical performance appears questionable”. SQNM is also reviewing data from its other Dx tests, and a special independent committee is investigating.

- Stephens is downgrading SQNM to Equal Weight from Overweight while lowering their tgt to $6 from $30. Clearly SQNM has taken a substantial credibility hit here and will likely lose a significant portion of its market capitalization today. Furthermore, they believe a delay in the launch of the prenatal diagnostics franchise exacerbates potential liquidity risk. Firm believes the best way to currently value the business is to look at a sum of the net parts. Given current uncertainty surrounding SQNM's diagnostic franchise, they recommend investors move to the sidelines until we receive externally validated data.

- JMP Securities lowers rating to Market Perform from Outperform noting that much to their chagrin, the launch of SEQureDx test for Down Syndrome is delayed by 1-1.5 years (originally scheduled for mid-2009). Sequenom has launched an independent investigation and suspended the four employees involved in the incident. As a result, the data published on June 4th, September 23rd, December 1st, January 28th, and February 3rd will be reviewed and the launch of Rhesus D, cystic fibrosis and Fetalxy tests will be pushed to 3Q09. Although management reaffirmed their confidence in the SEQureDx technology and reiterated a commitment to revalidate the T21 test with additional studies by 4Q09 (targeting 1,000 subjects, with data publication projected in 1H10), given the poor track record (note the erroneous data presentation at its analyst day on January 28 and its subsequent correction), the firm believes Sequenom’s tenuous credibility has evaporated, as have their molecular diagnostics (MDx) sales projections. Based on the limited information provided during the conference call, it is difficult to gauge the extent of this “data mishandling” and whether the NIPD test is salvageable, leading some to question the validity of the SEQureDx platform altogether. Thus, restoring credibility with the investment community could prove to be a long and treacherous road.

JMP believes that the stock may trade lower (potentially to $2, sum of the parts based on 2x FY09 revenue of $32 million plus FYE09 cash of ~$1/share) due to lost confidence in management and reduced growth prospects over the next 12 months.

- Barclays notes that needless to say, fraud changes the investment thesis in shares of SQNM. While much will be written about the who, how, and why, these events are now in the past. The question is what to do with the stock from here. The company's genetic analysis business is breakeven in a tough year and is likely to grow over time. They estimate the value per share of this business to be about $4. As for diagnostics, the market is likely to wholly write off any value for diagnostics, assuming that this setback does not merely represent a delay. Yet there is evidence that the company's technology is likely to result in an assay which may at some point become a commercializable test. While they and the market will remain skeptical in the absence of reliable peer-reviewed data, they allow for its possibility.

Barclays maintains Overweight but lowers tgt to $10 from $38.

Notablecalls: As you can see, the preliminary view on the shares is quite grim - very little info was given on the conf call which likely means even the management doesn't fully understand the situation (or there is freal fraud involved). Not a situation many are willing to step in.

On the other hand short interest stands at 26% of float which means there will be at least some short covering helping the shares. But do note SQNM will need to raise capital in the next 12 months or so to offset the cash burn.

There is ONE positive aspect to this situation, though: The stock will be very prone to move on any additional info. I'm sure Notable Calls Network (NCN) will do its best to be on the forefront when it comes to getting that info and putting it to work.

Wednesday, April 29, 2009

Goldman Sachs upgraded Activision Blizzard (NASDAQ:ATVI) to Buy from Neutral and adds the stock to their Conviction Buy list with a $14 tgt.

Firm believes the timing and magnitude of earnings catalysts in the form of game sales and active share repurchases should restart the trend of positive EPS revisions and improve sentiment on the stock while overhangs fade in importance. In a new detailed analysis, they find ATVI shares over-discount music genre fatigue and the Warcraft transition. Goldman sees Warcraft and other IP offering improved visibility into their c. 2%/8% revised, above consensus 2009/2010 EPS and sustainable earnings as a key driver of stock appreciation through 2H’09.

CatalystThe primary catalysts spurring visibility into sustained earnings power and their above consensus $0.80 2010E EPS will be the 2H09 game slate, led by perennial titles (Call of Duty, Guitar Hero, World of Warcraft, even ex-China), but also with new or refreshed IP (Tony Hawk, DJ Hero, StarCraft 2, Racing title, Prototype, Singularity, etc) and understanding of the relative contribution by franchise, offsetting music genre fatigue. In order of timing, 1Q09 results on May 7th, a resumption of share repurchases post 1Q results, and the E3 show from May 31-June 3, should all ease inflated concerns of earnings growth and volatility. Goldman's new Franchise Analysis illustrates that Call of Duty and WoW represent about 85% of operating income. As the more critical drivers, ongoing Warcraft and CoD strength more than compensate for Guitar Hero franchise risks, in firm's view.

Notablecalls: I think this may the call the stock needed to get moving. I see it up 5-6% today. Anything below that is a buy in my book.

Tuesday, April 28, 2009

Sanford Bernstein notes that despite Corning's (NYSE:GLW) strong results and near-term guidance, they are downgrading Corning to market perform because they believe that expectations and the stock price are now appropriately aligned. Firm's end-of-year estimates assume reasonably robust expectations for consumer demand and that leading Korean brands continue to use Taiwanese panel manufacturers as "swing capacity" (but less aggressively than in 1Q09). If their forecasts are in error, they think downside is more likely than upside.

Despite the possible upside, in the near term, Bernstein is more concerned about downside risks including:

Korea taking share or cutting Taiwanese orders more aggressively than the firm models. While they believe Tier 3 brands will occasionally deliver hit products, they expect Samsung, Sony and LG to continue as leading brands throughout 2009. Primary manufacturing remains in Korea, and, as they've learned over the last few quarters, Korean manufacturers will trim Taiwanese orders rapidly as demand drops.

Pricing in the wholly-owned business remaining weak as Taiwanese panel manufacturers continue to struggle and supply chain cyclicality increases pricing pressures. Taiwanese panel manufacturers shipped 52 million panels in 2Q08. The maximum quarterly shipments they see through the end of 2010 is 50 million, with much more pronounced cyclical fluctuations than in the past, which could result in pricing erosion greater than in the past.

Consumer demand for LCD televisions slows. Corning predicts that unit demand for LCD televisions will grow 18% in 2009, and Bernstein thinks that this is consistent with their s-curve modeling and retail data through 1Q09. They would be surprised, however, if consumers started purchasing televisions faster than the s-curve rate. Firm's model, which assumes ~5% lower unit aggregate TV demand than Corning's, predicts 12% growth for LCD TVs in 2009

They decrease FY09 EPS from $0.94 to $0.90 and FY10 EPS from $1.11 to $1.06.

Notablecalls: Bernstein was one of the early firms to make a positive GLW call, so I think this downgrade carries weight. Not saying GLW will get whacked on this but I see it trading close to $15 level today.

JMP Securities is out with a downgrade on Intuitive Surgical (NASDAQ:ISRG) taking their rating to Market Perform from Outperform.

Following the rebound in ISRG shares over the past month (currently trading at 24.5x JMP/Street 2010 EPS estimates), they do not expect Intuitive shares to outperform the market over the next 6-12 months, as they believe Intuitive’s top line growth through 2009 will fall in-line with reset expectations following 1Q09 earnings April 16 (consensus sales for 2009 remained around $906m while low/high Street estimates converged). Firm continues to forecast 6% top line growth for Intuitive in 2009, as growth in recurring revenue (20% growth in instruments/accessories and 34% growth in services/training) is offset by an 11% decline in da Vinci system sales under the constrained hospital capex spending environment. Additionally, while they continue to believe that Intuitive is well positioned for growth long term, as they believe the da Vinci system and procedure markets are large and underpenetrated, their forecasts for Intuitive to rebound to double-digit top line and EPS growth in 2010 is predicated on the hospital capex spending environment improving heading into 2010; they are now less confident about the timing of a recovery following the second AmericanHospital Association (AHA) report on the economy’s impact on hospitals published Monday.

JMP notes they had hoped to see from the follow-up AHA survey a stable outlook on hospital capex spending relative to the November 2008 survey, but they believe this outlook is more cautious.

Notablecalls: Given the recent short squeeze induced run-up in ISRG shares, I suspect the call will cause some selling pressure. While basically a valuation call, I just don't see people wanting to step in front of the pullback until we reach $130-$120 levels.

I see ISRG going below $140 level today.

Note JMP isn't alone in this - I see other firms out cautious on the name this AM

Goldman Sachs is out with some negative comments on salesforce.com (NYSE:CRM) saying their latest survey of SMBs on SaaS deployments and salesforce.com in particular, suggests that the company is facing increasing headwinds on renewals and ASPs. Broadly, they remain bearish on the demand trends for applications. Firm reiterates their Sell rating, Conviction List membership, and $23 price target on the stock.

In Goldman's survey, 48% said they would negotiate their contracts down soon, up from 38% in December survey. Their updated survey also suggests that, on average, companies are reducing seat counts over the next year by about 1%, a 7% change from the 6% expected increase in seats seen in last survey.

CatalystOngoing negative data points on application spending are likely to weigh on the shares going forward. SAP’s upcoming earnings report could provide some read-across to salesforce’s higher-end enterprise footprint. Firm expects SAP’s new license sales to be down 22% yoy, excluding the impact of currency, underscoring the difficult selling environment for enterprise applications. They also expect CRM’s 1Q report in May to highlight a continued slowing in the company’s bookings growth as new and renewal subscriptions are impacted by the ongoing global recession.

Notablecalls: A pullback maybe due for CRM in the n-t following this GSCO call. An excuse to sell, if you please.

Credit Suisse notes Roche and GSK could see an EPS benefit of ca 0.5% for every incremental$200M of flu related sales. Roche/Chugai/Gilead are the most likely to benefit (through increased Tamiflu sales) although GSK may also gain (through increased Relenza sales). In the longer-term, companies with pandemic flu vaccine know how may be able to develop a pandemic vaccine, and we may also see an increase in overall influenza vaccines. The main pandemic and seasonal manufacturers are GSK, Sanofi- Aventis and Novartis.

Mexico is in the midst of a flu outbreak which is believed to be due to a novel strain of swine flu (H1N1). Swine flu is typically not transmissible from human to human but in this case appears to have become transmissible. Given its novelty compared to prior influenza viruses in humans, it appears to be relatively more severe than the usual flu outbreaks and has resulted in multiple deaths in Mexico. This week, there have been several cases of the same strain identified in the south-western US, raising fears that at the WHO that this could develop into a flu pandemic. Like the avian flu, this virus appears to be susceptible to a specific type of anti viral medicine of which there are two available Tamiflu (Roche/Gilead) and Relenza (GSK/Biota) and both are recommended treatment options. Tamiflu is the better known and has enjoyed much stronger sales with peak sales of U$2.2B in 2006 due to government stock-piling. Roche pays Gilead a 22% royalty on sales and GSK pays Biota a 7% royalty.

Sanofi Aventis's Lovenox is manufactured from heparin sourced from pigs. US Lovenox is made from heparin sourced from North America. In addition, Sanofi has FDA approval for heparin from a Chinese source which can be used if required. Ex-US Lovenox is sourced from China, Europe and the US. The manufacturing process for Lovenox allows for viruses and prions to be identified and eliminated, and swine flu is a common virus. CSFB therefore believes that Sanofi's heparin supply for Lovenox should remain safe. If governments around the world start culling pigs, the risk to Sanofi-Aventis would increase but they consider this unlikely given that the spread of swine flu is now from human to human.

Although all of the companies show very similar theoretical EPS upside from a similar increment of influenza related sales, Roche has shown the highest historic sales contribution from Tamiflu in the past.

Notablecalls: OK, let's get something straight - NVAX, HEB, SVA etc. will all run on this swine flu hype but I strongly suggest you don't overstay your welcome in these. Yes, NVAX was a $10+ stock during the bird flu scare but that does NOT mean it will be a $10 stock again when pigs attack.

The real beneficiaries are likely to be the big players like Roche and GSK (GILD to some extent) but the stocks are just too sleepy to have any real actionable upside.

I see GILD up 3 pts early on - come on, this one has a $40+ bln. market cap. Get a grip, people.

Upcoming Investor Day — May 4 investor day a focus on BES 5.0 software that saves corporations money via embracing virtualization as well as App World. Firm does not expect new product launches (would be upside) at this event but they do expect Verizon to launch a Curve refresh (Niagara) 3G, better web browser & screen in the coming quarters.

Notablecalls: That $100 tgt is going to create at least some buzz among traders. After all, it's RIMM we're talking about here.

Not the biggest fan of the upgrade. Sudden confidence in gross margins? Geez Louise... go back and read the latest RIMM call from Morgan Keegan to get the scoop on recent gross margin 'outperformance'

Upcoming Investor Day a catalyst? No new product launches. No catalyst there.

Not saying the stock won't run on this. I think it will. I will be buying. I just don't have much conviction in the call itself.

Thursday, April 23, 2009

UBS is out downgrading Citrix Systems (NASDAQ:CTXS) to Sell from Neutral while lowering tgt to $22.50.

According to the firm the downgrade comes for the following reasons: 1) Macro to continue to impact near-term performance; 2) They think competitive pressures will limit the company’s ability to expand margins; 3) 2010 EPS estimates present a downside risk; and 4) Shares trade at a premium to the peer group.

Competitive pressures to limit Citrix’s ability to expand margins: Firm says they do not see material upside to consensus 2009 & 2010 operating margin expectations, which they estimate to be 23.8% & 24.6%, respectively. VMware has outspent Citrix on R&D cumulatively since 2000 and on an annual basis since 2006. As such, Citrix will need to invest aggressively in virtualization to improve its positioning in the space, which will likely limit its ability to expand margins significantly in the near term.

Downside risk to 2Q09 estimates Citrix will report 1Q09 results on April 29. They expect the company to report inline results but guide to lower than normal seasonality for 2Q09. Given that the company’s total revenues increased by 6% on average during the last 2 years, the firm believes the management team could guide to a sequential rise of 3-5% for 2Q09 revenues, which compares with current consensus expectations of a 6% q/q rise in 2Q09. They expect management to reiterate full year 2009 guidance of flat revenues and operating margin expansion of up to 100bps.

Notablecalls: Looks like UBS took a look at Vmware's (VMW) results and decided to act quickly and downgrade Citrix (CTXS) to Sell.

Somewhat similar businesses (VMW is sexier, CTXS on the other hand is more stable), high valuations...CTXS could easily suffer VMW's fate.

Notablecalls: I like RBC overall but they have run with the heard when it comes to AAPL over the past couple of years. They were high on the stock when it was at $200 and they bashed it when it was trading in the $80's.

So now they are positive again.

Sorry Mike and Mark, but you guys need to up the ante or soon nobody will be paying any attention to your calls.

Tuesday, April 21, 2009

Credit Suisse is downgrading Apollo, ITT and Lincoln to Neutral from Outperform due to rising concerns of a more challenging Legal/regulatory environment.

Although they are not clear on how the sector will react to earnings season, the firm believes the consensus EPS estimates are approaching levels that leave very little room for upside.

After last nights announcement that the Department of Education has hired Bob Shireman as deputy undersecretary to advise the Department on college fiancial issues and other higher education initiatives coupled with channel checks the firm has done in the last few days they believe that more DOE program reviews is now the "best case scenario".

The firm has worries that proposals could seek to tighten restrictions on incentive compensation/marketing practices; make it easier for students to withdraw from school quickly when they want to; or require colleges to disclose more “qualityrelated” metrics, such as life-time Federal student loan default rates. Although the progression of such proposals is unpredictable the firm thinks their mere existence would weigh on the sector’s valuation multiple. Further, the probability that the proposals will result in legal/regulatory changes is higher than it would have been in years past, as they think the Democratic administration, and Shireman specifically, are likely less sympathetic toward the for-profits than the Bush administration was.

Notablecalls: Education stocks have already gotten hit pretty hard in pre-market trading and it is hard to find a good entry so I will wait and see if a possibility arises.

Friday, April 17, 2009

Deutsche is out downgrading Sohu.com (NASDAQ:SOHU) to Sell from Buy with a $39 tgt.

According to the firm, Sohu has succeeded in its spin-off of gaming affiliate Changyou, but they fear growth expectations of both on-line ads and games implied in Sohu's current share price could prove too optimistic.

- On the advertising front, they assume that Sohu achieves only 9% YoY revenue growth in 2009 (cut from 13%), a pace they believe to be slower than consensus. While the company claims itself capable of achieving 12-18% YoY ad revenue growth in 1Q, they are taking a cautious stance toward its online ad outlook in 09 given 1) a strong base in 2008 2) major advertising accounts seem to be cutting ad budget 3) management issues and 4) intensifying competition.

- On the online gaming front, they expect revenue from TLBB to grow 28% in 2009 and slow to 11% in 2010. Despite achieving 437% revenue growth in 2008, past precedent suggests TLBB should experience substantial revenue growth deceleration in 2009 and 2010. Moreover Deutsche does not expect games in the pipeline to become meaningful revenue contributors in the near term, given current visibility and market anticipation. They forecast incremental revenue from these games will amount to US$3.3m in 2009 and US$11.6m in 2010.

They believe current share price suggests a still overly optimistic view towards Sohu financialperformance in 09, which they believe is unachievable. Further, they highlight Sohu’s online ad business should trade at a discount to that of Sina, given its structurally weaker position in brand ad while current share price implies 20x 09 PE for Sohu and 22x for Sina.

Notablecalls: I suspect SOHU will get hit on this (at least early on). Very prone to squeeze, though.

Wednesday, April 15, 2009

Yesterday's down close qualifies today's breakout above the TDST line at $11.98 that has been resistance for several days. Moreover, the cloud's lookback line (in royal blue) has move up through its cloud. This should rally to test its 200-day mov avg just south of $14. Tightstop is a daily close under $11.00.

Notablecalls: I'm a bit late with this one but FYI.

PS: A friend of mine asked me yesterday if the site was hacked. No, it's me putting up the charts. Some of these are interesting, aren't they? Not as actual calls but rather as a glimpse at what the tech guys are thinking.

LHC Group Inc (NASDAQ:LHCG) is getting comments from RBC and Jefferies after details of a whistleblower lawsuit alleging improper Medicare billings circulate:

- Jefferies notes they expect a sharp sell-off in LHC this morning as details of a whistleblower lawsuit alleging improper Medicare billings circulate. While details of the lawsuit will likely cast an overhang on the stock, valuation is already low and there are near-term earnings and reimbursement catalysts that could drive shares higher.

Despite this setback, they believe that the stock is already excessively undervalued (especially given the company's solid outlook and likely near-term earnings and reimbursement catalysts), and would recommend buying the shares on what they expect will be an overblown sell-off today (especially if it falls below $18 or 8x P/E).

Maintains Buy and $28 tgt, would be aggressive buyers.

- RBC Capital notes that while this suit is likely to be dismissed, they believe it could have a negative impact on LHCG share.

Given the media attention and government's focus on the fraud, abuse, and lack of oversight inthe home health industry, allegations of fraud by a former employee adds to the negative overhang on the home health group and could open the door for the government to take a closer look at LHCG's compliance protocols. That said, there appear to be no indications of wrongdoing, and while they think it is possible this case could be dismissed with prejudice, the firm remains on the sidelines until there is further clarity regarding potential reimbursement changes.

Maintains SP rating.

Notablecalls: Disgruntled former employee cases usually offer buying oppy's. So, if youre willing to catch a falling knife LHCG is for you. $16 is the level to watch (not sure you get any decent fills there, though)

Barclays is out upgrading Allegheny Energy (NYSE:AYE) to Overweight from Equal-Weight and adjusting their tgt to $40 from $35.

The firm believes the catalyst for AYE is an auction to price power in Pennsylvania beginning in 2011 with the first tranche results due 4/17.

- AYE is a lateral to the recent PPL 2010 Pennsylvania auction that priced power at $87/MWhr. The implication for AYE is a $68/Mwhr price including $7-$10/MWhr of basis which would confirm the consensus range of $4.12-$4.70. Barclays' new 2011E is $0.21/share higher at $4.45.

- They believe the key positives for AYE are: 1) PA going to market rates in 2011; 2) Free cash flow before growth cap-ex and after dividend of $321M in 2010 and $548M in 2011; and 3) Under-earning regulated utilities with upside.

- The PA auction this week is the first of 8 auctions to set post 2010 prices. This 250 MW bid has 17 and 29 month tranches. Adjustments to the AYE price are taxes, basis, gas price and capacity.

The main catalyst for the AYE upgrade is the outcome of a similar PPL auction already in April, but also performance as the stock is down 28% this year versus 12% for Power and 5% for the S&P 500. This market signal for AYE helps to mitigate the impact lower gas prices could have on pricing power in 2011, in firm's view. Despite low gas prices, the cost to contract power is also being impacted by increased costs of ancillary services and higher credit carrying costs. In addition, the outlook for CO2 legislation this year has transformed to either an unlikelihood or a compromise bill, which helps mitigate AYE’s risk as a substantially coal-fired generator.

Notablecalls: So here you have a beaten down stock with a catalyst. Utility play with a close to 100% upside tgt should attract at least some attention.

Tuesday, April 14, 2009

Along with our previously stated resistance in the 859-62 area in June S&P futures, which caught yesterday's high, I've also looked at a 60-minute chart of SPY, the equivalent ETF. It made it's third TD Sequential +13 sell signal late yesterday. Note that there have been two other 60-minute SPY 13 sales since the March low (which was also made on a -13 buy), and all have accurately called a pullback.

In fact, you can see that the prior 5 "red 13" signals - both bullish and bearish ones - have given reason to not chase at current price whatever the trend was leading into the signal.

Thus, we can conclude that here and now is probably not the time to be chasing the market on the long side.

Notablecalls: FYI - I agree. We're clearly headed lower for the time being.

Monday, April 13, 2009

Goldman Sachs is out with a call on Steels recommending Buy AKS/Sell X pair trade in order to mitigate auto sector risks and steel sector risks, while at the same time monetizing their Buy view on AKS and their Sell view on X. Goldman sees three reasons for AKS to outperform X:

2) Earnings could prove a differentiating catalyst; AKS's electrical steel business could surprise to the upside, X's OCTG business to the downside.

3) AKS's balance sheet and covenant restrictions are less worrisome.

AK Steel offers the best upside potential in their coverage universe. Goldman upgrades AKS to Buy from Neutral and raise target price to $12 from $6.50, implying 24% upside. In firm's view, AK Steel's cost structure is much more variable than the market gives it credit, which will see the company benefit from falling iron ore prices in 2H2009. Accordingly, they raise their 2H09 and out year estimates.

The April 21 earnings release could be a positive catalyst for shares as they expect the electrical steel business to remain highly profitable. In addition, AKS will extract better efficiency following extensive repair work at its Middletown furnace. Finally, they are positive onAK Steel's balance sheet as it only has $70 mn of net debt, low leverage, and no maintenance covenant issues.

An AK Steel/US Steel pair trade mitigates risks. Goldman notes their primary concern with their Buy-rated AKS call is the risk of rising counterparty defaults related to bankruptcies in the auto sector. As AKS and X have roughly the same end-market exposure, pairing them helps eliminate this risk. As the two stocks are highly correlated, pairing them may also help eliminate broad sector/commodity risks.

Notablecalls: So, it's basically an AK Steel (AKS) upgrade and one should should treat it as such.

They are not saying anything new re: US Steel (X) - the problems are already well known and shorting based on Goldman's call is basically a market timing call on your part (not the worst of ideas, in my opinion)

Thursday, April 09, 2009

UBS is out with a major call on RF Micro (NASDAQ:RFMD) upgrading the stock to a Buy with a $3 tgt.

The firm upgrades RFMD to Buy from Neutral for the following reasons: 1) They significantly raise estimates as recent checks show strengthening momentum 2) With major restructuring measures complete, RFMD is likely to see sizeable margin expansion due to increased utilization, and 3) They expect more positive action to reduce debt burden. Upgrade to Buy & raise PT to $3, equal to P/S of ~1.

March marks the trough in fundamentals; Multiple drivers going forwardChecks confirm that March was the tough, and strong momentum during the current restocking phase could support a high single digit (possibly low double digit) sequential growth in June qtr, compared to consensus view of +3% seq for June. Also, impact from recent restructuring should also contribute towards higher margins. UBS further believes that company’s new product initiatives aimed at reducing die size should also contribute towards higher revenue and margins.

Raising estimates significantly above consensusBased on their positive view for the sector and improving outlook for RFMD, they are significantly raising our estimates. For FY10, they are modelling pro forma Rev/EPS of $798m/$0.08 (cons $743m/-$0.04), up from $721m/$0.02. For FY11, they are forecasting pro forma Rev/EPS of $886m/$0.16 (cons $812m/$0.00), up from $802m/$0.11.

Notablecalls: I think this one can do $2+ in this market. UBS has done some digging and the numbers they have published today are BIG.

Stocks with similar charts (for example Ruby (RT) ) have done pretty well lately in reaction to upgrades.

Morgan Keegan is out with some brilliant comments on Research in Motion (NASDAQ:RIMM) after the co filed its 40F (annual report) yesterday morning. The takeaways are two-sided:

Most importantly, RIM's warranty disclosure reveals that RIM over-accrued for warranty expense (accrual greater than realization) by roughly $75 million, which negatively impacted GM by 220 bps in Feb. The firm suspects a more normalized accrual accounts for about 1/2 of the GM improvement from Q4 to Q1 (the other 1/2 likely mix). Warranty experience (actual cash outlay) has only ticked up modestly in last 2 quarters (i.e., new products are equally high in quality as older products).

New Products Not Showing Material Difference In Warranty Experience - RIM's warranty experience (the actual cash it pays out for returns, etc...) is remarkably stable since the launch of its new product line up last fall. In the August quarter of last year (last quarter before selling Bolds, Storms, 8900s, Flips), RIM's warranty experience was 2.4% of revenues. In the Feb. quarter, it was 2.6% of revenues with likely over 1/2 the shipments being from the new handsets. This seems to be quantitative proof that return rates on the new products are only slightly higher than RIM's traditional handset portfolio.

RIM's raw material balance was up 21% sequentially in Q4, and it continues to grow its purchase commitments for future inventory at a rate of over 100% y/y, which indicates that based on their ordering pattern, RIM does not seem to be acting as if its trends will slow anytime soon.

Summary: Overall, RIM's annual report was enlightening on a number of fronts. First, it appears RIM's new 9000 series products do not have significantly higher return rates or warranty expenses than previous RIM handsets. It also appears RIM accrued very aggressively to its warranty reserve in Feb., which likely led to an artificially low GM, which helps explain why May GM guidance was so strong sequentially.

Notablecalls: So what does this mean? RIMM artificially kept GM's low and then provided blow-out guidance. So this means there won't be any real improvement in GM and the recent rally is a head-fake?

Go figure.

The call is brilliant but won't get much attention unless any of the tier-1 firms come out and lower their L-T margin views.

JP Morgan is out lowering their rating on Mosaic (NYSE:MOS) to Neutral from Overweight while lowering tgt to $44 from $50.

According to the firm the downgrade is based a weaker earnings outlook and valuation issues. Mosaic has been a strong performer in 2009, outpacing both Potash Corp. and the S&P. Mosaic has climbed 32% and Potash 13% versus (9%) decline for the S&P 500 since December 31, 2008. Mosaic now trades at 6.8x EV/EBITDA for F2010 (ends August) versus 6.4x for Potash for F2009 (ends December). They note that Potash Corp, historically, has commanded a premium valuation on the basis of its higher financial returns. JP Morgan has reduced their Potash segment profit expectations sharply for F2009 based on lower forecasted volumes, and Phosphate margin forecast for F2010 based on narrower projected prices and margins leading to substantially lower earnings expectations for both years

Materially reduced EPS forecasts for Mosaic for F2009 and F2010. Lowered F4Q:09 EPS forecast from $1.18 to $0.29 and F2009 estimate from $5.00 to $4.20 largely because they decreased potash shipments for the fourth quarter from more than 2 million tons of product to 1 million tons. Potash shipments for Mosaic are running 29% below the previous year period and may reach a 37% decline by fiscal year end. The firm also reduced their F2010 EPS projection from $6.00 to $4.00 largely to reflect a lower DAP price forecast of $370 per ton versus $500 per ton previously

Firm prefers Potash Corp to Mosaic at this juncture. Mosaic has been a good absolute performer and an excellent relative performer in 2009, and they want now to take some money off of the table and reduce exposure to the fertilizer companies somewhat. Secondly, incremental demand data for potash continue to run lower than their expectations, raising the risks of negative price volatility in the event of a late or a poor settling of the Chinese potash contract. Finally, they prefer to own the equity with the greater potash leverage per share and a lower valuation, given that the performance of Potash Corp and Mosaic in the near-term probably rests on the level of the Chinese potash contract.

Notablecalls: Sensible call by JP Morgan's Specialty and Major Chemicals team, in my opinion. Won't do much damage to the stock price, though.

Tuesday, April 07, 2009

Citigroup is out downgrading Archer-Daniels-Midland Company (NYSE:ADM) to Sell from Hold following their our visit with ADM management in Decatur, Illinois, which confirmed their belief that fundamental trends are deteriorating across ADM's major businesses, namely Oilseed Processing and Agricultural Services. Citigroup is maintaining their below consensus EPS estimates and $25 price target which, at current prices, implies -13% in expected downside.

F3Q09 Report Represents a Negative Catalyst — Citi believes that weakening trends in Oilseeds and Ag. Services have yet to manifest themselves but will on ADM's F3Q09 earnings report. They believe that F3Q09 EPS will come in below consensus of 52c (they are at 46c) and will likely prompt a lowering of F2010 consensus estimates of $2.87 which they believe are too high and will need to come closer to Citi's F2010 estimate of $2.00.

In some cases, the deterioration has been extremely rapid—agricultural services and oilseed processing—while in other cases the deterioration has been a bit more moderate such as in the firm's wheat and cocoa processing division.

- ADM has always been an analyst darling. There aren't that many firms out there with Sell ratings.

- The stock has held up really well over the past year and is actually up around 15% YTD.

- Citi highlights rapid deterioration in several areas.

ADM is set to report on Apr 29 and given how determined the analyst is calling for a miss, I'd say the stock may experience some downside in the n-t. I have very little feel for the actual magnitude of the move but around -5% seems prudent for today.

Monday, April 06, 2009

Barclays is out with am interesting call on Apple (NASDAQ:AAPL) raising their tgt to $143 from $113 saying the stock remains one of our top picks given its new product pipeline & very strong free cash flow. They believe new products including a new familiy of iPhones in June & an ultraportable later this year should boost shares.

They are raising their pro forma estimates for Apple significantly given their view that the company candeliver a robust new product cycle for iPhones in '09 supporting about $10/sh in annualized FCF. Also, iPhone demand has held near-term better than their conservative ests according to checks.

- Barclays believes AAPL is readying a an ultraportable device for later this yr (not included in ests).

- Given the iPhone is becoming a much bigger portion of earnings, they focus on "pro forma" EPSthat reverses iPhone subscription accounting. They new price target is $143, 15x our new pro forma estimate of $7.88 for FY10.

Notablecalls: Just wanted to let you know it's out there. I personally feel the stock needs to take a breather (a pause that refreshes, if you please)

PS: Here's what Barclays has to say about the new portable. Pretty interesting:

Note that our Mac and iPod estimates do not include the potential for Apple to ship a new ultra-portable device that we believe could come in 2H calendar ’09. We believe Apple needs to address the netbook market in its own differentiated way. As a result, Apple may introduce atablet-like computer/iPod optimized for media, gaming and other key features (possibly iChat). Media reports such as “Apple Plans To Launch Netbook With Touch Screen” (Dow Jones, 3/9/09) back our longstanding views that Apple may launch its answer to the netbook shortly. Media reports discuss a touchscreen size of 9.7-10 inches, which is in line with our longstanding views that the company is working on new form factors to bridge the gap between its iPod touch ($399) and low-end MacBook ($999). We believe that video chat and gaming could be interesting applications for any new device. As a result, we expect any Apple “netbook” to be very different (and “cooler”) than a typical Windows based device with a keyboard. Note that we estimate the netbook market to be 30 million units in 2009 – if Apple can capture just 5% share of this market (comparable to Apple’s worldwide share of notebooks) – it would equate to 1.5 million units and almost $1 billion in revenue per year (assuming a premium ASP of about $600

Friday, April 03, 2009

JP Morgan is out downgrading Monsanto (NYSE:MON) to Neutral from Overweight while lowering tgt to $82 from $100.

According to the firm, EPS issues for Monsanto more concern F2010 than F2009. CEO Hugh Grant emphasized the F2009 glyphosate peak on the conference call and the uncertainties in the rate of gross profit decrease ($0.60 per share) from his $2.4 billion F2009 forecast to the $1.9 billion projection he envisions for 2012. That, in a word, is the primary difficulty in forecasting EPS over a multi-year period for Monsanto. Should the decline occur at once, Monsanto is likely to have a flattish EPS year. Should it happen more gradually, the effects mean less.

A second issue is that Monsanto probably needs to raise corn seed and trait prices 5%-10% in F2010 after a year of roughly 20% increases in F2009. Given the possible magnitudes of the glyphosate decreases there is little choice in order for EPS to have a reasonable chance at growing at a double-digit rate for F2010. Given that price announcements in corn traits and seeds are probably not forthcoming until August-September, and the rate of glyphosate profit decrease is an open question, investors will probably have difficulty in valuing Monsanto over the coming months.

Monsanto’s F2010 EPS growth rate is likely to decelerate in F2010. F2009 EPS is being assisted by a roughly $0.50 per share tailwind in glyphosate. A ($0.30) headwind might be a reasonable base case for F2010. F2009 was an exceptional year for price increases in corn seeds and traits and they expect gross profit to climb 23% or about $0.70 per share; something like 60% of this increase or $0.40 seems more reasonable for F2010 at this juncture. JP Morgan does however expect soybean seeds and traits to have a strong F2010 as Ready to Yield soybeans ramps up to about 10 million acres and benefits the income statement by about $0.35 per share.

Notablecalls: Struggling to decide if this is a significant call or not. The agri chem. analyst team at JPM is pretty well regarded but on the other hand it's kind of difficult to envision Monsanto's growth coming to a halt.

If JPM's right (or if investors think they are right), MON's headed lower. Way lower.

PS: I'm hearing MSCO is out lowering MON tgt to $115 from $170 this AM.

Wednesday, April 01, 2009

JP Morgan is out with a nice upgrade on Ashland (NYSE:ASH) taking their rating to Overweight from Neutral with a $17 tgt for Dec 2009.

Firm notes Ashland's recent monthly volume and margin data probably point to meaningful improvements in cash flow, free cash flow and earnings. The gross margin is widening considerably at Valvoline due to resilient product prices and sharply lower raw material costs stemming from base oil price decreases. The gross margin appears to be moving up in Water Treatment, and Aqualon sales are only decreasing at a low-double-digit rate. They believe the sum of these improvements point to decreased financial risk. Firm expects Ashland to generate free cash flow of close to $4.00 per share for F2009 (ends September). The valuation of Ashland remains distressed, in their view, selling at 3.6x F2009 EBITDA. Each EBITDA multiple point turn is worth about $10/share. Accordingly, they believe Ashland's shares offer large capital appreciation potential at reasonable levels of risk. JP Morgan's December 2009 price target is $17, or about an 11x multiple of EPS, consistent with other smaller capitalization chemical companies.

Ashland shares have been volatile. The shares decreased from $60 (pre-Hercules acquisition) to $6 to $10 currently. Despite the large price lift off from the bottom, they believe there is ample room for superior capital appreciation potential over a longer-term period given the company’s massive cost reduction efforts ($265 million in run-rate costs to be eliminated in F2009) as well as future cyclical strength.

Notablecalls: I like this one. Could see it run to $11 as soon as today.